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This Week in Health Care Reform: November 1st, 2019

Super-spenders drive billions of dollars in drug costs; the use of alternative payment models is on the rise; a new analysis further examines private equity’s role in driving up health care costs; and, cost containment efforts by payers are overwhelmed by provider consolidation.

Week in Review

Drug Super-Spenders: With so much attention focused on rising drug costs, our understanding of those cost-drivers continues to take shape.  Specifically, a new report takes a hard look at the role that specialty drugs play in overall drug spending, and the findings are nothing short of alarming.  Specialty drugs are medicines that are used to treat complex conditions, such as arthritis, multiple sclerosis, and cancer.  As such, these drugs often come with exorbitant price tags, costing anywhere from $500,000 to $2,000,000.  In fact, according to some analyses, specialty drugs now make up more than half of all drug spending.  With this in mind, maybe it should come as no surprise that in 2018, approximately 4,900 patients accounted for $2.1 billion in health plan drug costs alone.  Classified as “super-spenders”, these individuals had drug costs in excess of $250,000 per patient that year.

APMs: In a new survey of payers, the vast majority (91 percent) said they thought that the use of alternative payment models (APM) would increase going forward.  Nearly all agreed that adoption of APMs would not only improve care coordination, but would bring about higher quality care, as well.  Also, the majority indicated that APMs would positively affect health care spending.  We’ve already seen the emphasis on value begin to reshape health care benefit design, delivery, and reimbursement.  For example, more than half of all major payers reported having executed an outcomes-based contract with a drug manufacturer this year.  That movement towards value has also led to a significant increase in outpatient centers, as the industry transitions towards more convenient, affordable care.  According to a separate analysis, the number of these facilities jumped 51 percent from 2005 to 2016.

Private Equity: Much has been made of private equity firms’ vested interest in complicating efforts to find a workable, pro-consumer solution to surprise medical bills – and, as detailed in a new article published this week in the Harvard Business Review, it’s not hard to understand why.  Through the use of surprise billing, these companies have quietly played an outsized role in driving up health care prices, namely by targeting physician practices for investment.  Recognizing the exploitative profit potential that comes with being able to charge patients outrageous amounts for the care they need when they’re at their most vulnerable, private equity firms have been gobbling up these practices at an increasing rate.  And, their reach has extended further to include free-standing emergency rooms (ERs), where the majority of visits are for non-emergency care, which can be 22 times more expensive than treatment administered in a traditional doctor’s office

Provider Consolidation:
As stakeholders continue to grapple with how to contain health care costs, a new study draws attention to one culprit steadily working against those efforts.  According to researchers at Georgetown University’s Health Policy Institute, provider consolidation has limited insurers’ and employers’ ability to tackle out-of-control health care costs.  In interviewing stakeholders in six separate midsize markets across the country, each with high levels of provider concentration, they found that, following mergers, hospital systems used their increased size to exact higher reimbursement rates from payers, even deploying “all-or-none” contracting terms in their negotiations.  Smaller hospitals were also able to leverage their position to secure more lucrative terms.  In some cases, researchers discovered, health systems made it impossible for health plans to exclude them owing to geographic or clinical service monopolies in the market.  They go on to point out that 90 percent of the markets in the U.S. are already highly consolidated, underscoring the challenges facing these cost containment efforts.      

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